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Retailers Form Mobile-Pay Network

Wal-Mart and Target are among the companies building a mobile app that will work with all smartphones.

Retailers including Wal-Mart Stores Inc., Target Corp. and Best Buy Co. formed a company that would allow customers to pay with their mobile phones as they work to gain control over the growing method of processing purchases.

The company, named Merchant Customer Exchange, or MCX, is developing a mobile application, the retailers said today in a statement. The app is intended to work with all smartphones and as many forms of payment as possible, including Visa Inc. and MasterCard Inc. debit- and credit-card accounts, said Terry Scully, president of Target’s financial and retail services.

The retailers see an opportunity to grab part of the emerging mobile-payments industry, which may expand to $170 billion in 2016 from $60 billion this year, according to Juniper Research. The venture also will try to improve the in-store experience and cut costs, including swipe fees the chains pay when consumers use a credit card, Scully said.

“This technology should help in addressing what is a well- known issue,” Scully said.

The venture comes amid a proposed $6.6 billion settlement between merchants and Visa and MasterCard of a lawsuit concerning credit card swipe fees. The settlement faces opposition from retail trade groups and individual retailers, including Wal-Mart and Target.

Credit-card swipe fees, which average about 2 percent of each transaction, generate about $40 billion a year for banks such as JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc.

MCX is in talks with several large financial institutions to become partners, Scully said. There are also many more retailers than the 14 named in the statement that are at different stages of involvement, Michael Cook, assistant treasurer at Wal-Mart, said in an interview.

Including large banks may be a key to the venture, said Richard Crone, chief executive officer of Crone Consulting LLC, which advises retailers and banks on mobile-payment solutions.

Partnering with banks could lead to transactions being processed directly by a financial institution instead of passing through the payment networks run by Visa and MasterCard and others, he said.

“This is a big deal,” said Crone, who’s based in San Carlos, California. This could be “revolutionary” for merchants and banks, he said.

Courting Banks

Banks are being courted so consumers can have access to an account they have with a bank such as Citigroup or JPMorgan, said Cook, who declined to comment on whether transactions would be made directly with financial institutions. Banks now get paid fees on transactions made over payment networks such as Visa. They, along with other participants in MCX, will be fairly compensated, Cook said.

“Our objective is to make the system as efficient as we can by taking out costs that add little or no value to the system,” Cook said.

Customer data also is an important part of the push to create MCX, Crone said. Mobile-payment products from Google Inc. and ISIS, which is backed by carriers Verizon Wireless and AT&T Inc., track customer behavior and then send targeted ads.

“They are trying to inject themselves in between the retailer and consumer and that’s what MCX is fighting to protect,” Crone said. The merchants “risk being marginalized and relegated to showrooms.”

The platform will be available to all kinds of merchants, including stores, casual restaurants and gas stations, the retailers said. It will also have the versatility to be added to a retailer’s existing mobile-payment technology, they said.

While the retailers have announced the formation of a company, they still have a long way to go in developing a product, said Michael Taiano, an analyst with Telsey Advisory Group in New York who covers the payment networks. MCX will need a lot of retailers to join the effort to make it appealing because consumers want a payment option that can be used almost anywhere, he said.

“It’s easier said than done,” Taiano said in a telephone interview. “The devil is always in the details.”

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